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Branch of law
Special contracts
Agency
Indian Contract Act
Does not deal with
Partnership
Sale of goods
Negotiable instruments
insurance
Nature of Law of Contract
Differs from other branches of law
Does not lay down rights and duties
Lays down principles subject to which parties can create contracts
Parties create law for themselves
Gives freedom to contract in any way the parties please
Contract and Conveyance
Jus in personam
What is a contract ?
A contract is an agreement enforceable by law
What is an agreement ?
Every promise and every set of promises forming consideration for each other is an agreement
What is a promise ?
When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be
accepted. A proposal when accepted becomes a promise.
What is a proposal (offer) ?
A person is said to have made a proposal when he
Signifies to another
His willingness
To do or to abstain from doing anything
With a view to obtaining the assent of that other to such act or abstinence
Must be communicated
No communication no acceptance, No acceptance, no agreement, No agreement, no contract
Offer should not contain a term the non compliance of which may be assumed to amount to acceptance
One cannot say that if the acceptance is not communicated by certain time, the offer would be considered as
accepted
A statement of price is not an offer
An auctioneer announcing an auction in the newspaper. If the auction is cancelled, one cannot sue for
cancellation
Display in a shop
Invitation to purchase
Sale of goods in malls, contract is made when the cashier at the counter accepts the payment
What is Acceptance ?
An act of assenting to the offer.
At an auction sale, X is the highest bidder. The auctioneer accepts the offer by striking the hammer on the
table. This is an implied acceptance.
Legal Rules as to Acceptance
It must be absolute and unqualified
A made an offer to B to purchase a house with possession on 25th July. The offer was followed by an
acceptance suggesting possession from 1st Aug. There was no agreement.
Comm is complete as against the person to whom it is made, when it is put into transmission
As against the person who makes it, when the other person comes to know of it
Time for revocation
Of offer
Any time before the communication of acceptance is complete as against the proposer
Of Acceptance
Any time before the communication of acceptance is complete as against the acceptor
Consideration
When at the desire of the promisor,
The promisee or any other person
Has done or abstained from doing
Or does or abstains from doing
Or promises to do or to abstain from doing
Something,
Such act or abstinence or promise is called a consideration for the promise
Consideration can be
Past
Present
Future
It is an act e.g. A promises B to guarantee payment of price of the goods which B sells on credit to C.
It is an abstinence e.g. A promises B not to file a suit against him if B pays A Rs. 500.
Legal Rules as to Consideration
It must move at the desire of the promisor
It may move from the promisee or from any other person
It may be an act, abstinence or forbearance
May be past, present or future
Need not be adequate.
Must be real and not illusory.
Must be something which the promisor is not already bound to do
Must not be illegal and immoral
Capacity to contract
Who can contract ?
A major
A person of sound mind
A person who is not disqualified from contracting by any law to which he is subject
Contracts with minor
Inoperative and void ab initio
Contracts with persons of unsound mind
A lunatic
A drunken or an intoxicated person
But when he is not under the influence of intoxication, he is capable of contracting.
FREE CONSENT
Coercion
Undue Influence
When one of the parties to a contract is in a position to dominate the will of the other
When he/she abuses this position to obtain unfair advantage
Misrepresentation
It is a false statement
The person making it honestly believes it to be true
Or he does not know it to be false
Misrepresentation includes non disclosure of material fact without any intention to deceive
Fraud
It exists when there is a concealment of a material fact or partial statement of fact with an intention to
deceive or to induce to enter into a contract
Mistake
Of law
Of fact
Bilateral Unilateral
Exceptions:
Identities of
Persons
Nature of contract
Legality of Object
Consideration must be legal
It is forbidden by law
It is fraudulent
It is regarded immoral
Void ab initio
Event is uncertain
Event is collateral
‘A’ agreed to purchase certain shares of a company if the company appointed him as its sole agent at a
certain place. Before the company do that, it went into liquidation.
‘A’ was entered in the list of contributories.
Held A was not liable as the event upon which purchase of share was to take place, never occurred.
Performance of contract
Performance of a contract takes place when parties to it fulfill their obligations within the time prescribed and
in the manner prescribed.
What is an offer to perform ?
A software company enters into a contract with a mining company to install electronic device system for
dispatch of mined lignite. The software company installs the system.
Subsequently the mining company prevents them from operationalizing the system.
Time is of essence in a contract
The performance of a promise within the specified time by a party to the contract is essential in order to
entitle him to enforce performance from the other party.
In business and mercantile contracts, time is of essence because business requires certainty.
Discharge of contract
Discharge takes place when rights and obligations created by a contract come to an end
How can a contract be discharged?
By performance
By agreement or consent
By impossibility
By lapse of time
By operation of law
By breach of contract
Contract is discharged.
Breach of a contract
If a party breaks his obligation which the contract imposes, there takes place a breach of the contract.
Actual breach may take place either at the time when performance is due
Or during the performance of the contract
Anticipatory breach may take place when the party repudiates his obligations before the time of performance
arrives
‘A’ undertakes to supply 10 cars to B on 1st Jan. Before this date, he informs B that he is not going to supply
the goods. This is anticipatory breach of contract.
What can you do in case of breach?
Can rescind the contract
Can sue for damages
Can sue for specific performance
Can sue for injunction
Quasi contracts
It is a relationship resembling that created by a contract.
It is created by law
Supply of necessities
Payment by the interest person
Obligation to pay for non gratuitous act
Responsibility of finder of goods
Something delivered in Mistake or under coercion
A supplies the wife and children of B, who is a minor, with necessaries suitable to her condition in life. A is
entitled to be reimbursed from the property of B.
No one appears to claim it for quite some weeks in spite of the wide advt.
S refuses to return
An insurance company paid the amount on a policy under the mistake that the goods had been destroyed by a
peril insured against.
The goods in fact had been sold.
The co. can recover the money.
Indemnity
A contract by which one party promises to save the other from loss caused to him by the conduct of the
promisor himself or by the conduct of any other person
Guarantee
It is a contract to perform the promise, or discharge the liability of a third person in case of his default.
Bailment
Derived from a French verb, bailler = to deliver
e.g. A delivers the goods for being transported from Anand to Ahmedabad to a transport company
Pledge
Bailment of
goods
as security
for payment of
a debt or
performance of a promise
is called pledge
e.g. A borrows Rs. 200 from B and keeps his watch as security for payment of the debt
Any kind of movable property i.e. goods, documents or valuables may be pledged